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Related Issuers

Grand Canyon University, AZ

Related Research

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Credit Opinion: Grand Canyon University, AZ: New Issuer

Rating Action:

Moody's assigns initial Ba1 issuer rating on Grand Canyon University, AZ and Ba1 rating to series 2021; outlook stable

08 Nov 2021

New York, November 08, 2021 -- Moody's Investors Service has assigned an initial Ba1 issuer rating to Grand Canyon University, AZ as well as a Ba1 rating to the proposed $1.2 billion Taxable Bonds, Series 2021B with final maturity in fiscal 2029. The outlook is stable.

RATINGS RATIONALE

The assignment of the Ba1 issuer rating acknowledges the substantial scale and record of enrollment growth at Grand Canyon University (GCU). Enrollment growth in online and on campus segments will provide the university with the ability to invest in new programs, facilities and service its debt. While the university benefits from a clear market niche with a record of traction amongst consumers, we expect ongoing competition especially for online students to intensify over the next decade. This competitive landscape, when combined with limited liquidity and heightened revenue concentration informs our view of the fair strategic positioning. Fair brand and strategic positioning also incorporates graduation and retention rates softer than at some peers. The degree of financial leverage also weighs on the rating with total cash and investments to debt well below sector medians at 0.3x. While the relationship between GCU and Grand Canyon Education (GCE) including elements codified in the Master Services Agreement (MSA) has demonstrated itself as high functioning, the longer term nature of the MSA and various exit payment provisions constrains the credit quality of the university. The MSA provisions include a 60% revenue share for almost all of GCU's revenue. Governance considerations, including the unique structure and leadership relationship between GCU and GCE, are a key driver of the rating action. While recognized as a private, nonprofit corporation by the Internal Revenue Service, the Higher Learning Commission (the university's regional accreditor), and the State of Arizona, the US Department of Education treats the university as for-profit based on its "Review of the Change in Ownership and Conversion to Nonprofit Status of Grand Canyon University" dated November 6, 2019. This Title IV status informs the operating environment score of fair. While three years of audited financial statements have substantiated good financial stewardship and budget discipline, the Financial Policy and Strategy score is fair due to the commitment to growth and capital investment at the expense of building reserves as well as expense constraints introduced by the MSA and debt burden. The approximately 8 year maturity of the proposed bonds also exposes the university to interest rate and market access risks over the medium term.

The Ba1 rating on the proposed taxable bonds incorporates the Issuer Rating combined with the non-contingent, broad pledge of the university. The Series 2021B bonds are enhanced by a pledge of gross revenues and a first lien mortgage on the core campus. Given the preponderance of secured debt in the capital structure and the uncertainty around the value of the mortgage in a distressed scenario, Series 2021 B bonds are rated at the same level as the issuer rating at this time.

RATING OUTLOOK

The stable outlook reflects Moody's expectations of some revenue growth and annual EBIDA in the $150 million range. Our forward view of liquidity is informed by ongoing capital investment plans with the majority of free cash flow going into facilities over the next few years, with the pace of capital facility investments moving in line with market and revenue changes. The stable outlook is predicated on prospects to maintain healthy headroom over the 55 Days Cash on Hand covenant. The outlook is also contingent on limited incremental debt as well as substantial headroom over the Debt Service Coverage Ratio as well as evidence of ongoing effective market access. The stable outlook also incorporates our expectations of credit favorable relationships with federal and state agencies.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Significant growth in total cash and investments

- Marked improvement in operating performance and debt affordability

-Sustained operating history for Grand Canyon University including evidence of expanding independence from GCE

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Deterioration in operating performance

- Unfavorable changes in operating environment including federal regulatory or oversight changes

- Decline in unrestricted liquidity given already thin cushion

- Reduced ability to meet enrollment and student revenue growth targets

LEGAL SECURITY

The obligation of the university, as currently the sole member of the obligated group, is a general obligation enhanced by pledges revenues which incorporate the majority of revenue including tuition. The bonds are also enhanced by a mortgage of the majority of the university's campus.

USE OF PROCEEDS

Proceeds from the Series 2021B bonds will be used to refinance the Series 2021A Note, refinance the GCE Note, reimburse the university for recent capital investments and to pay costs of issuance.

PROFILE

Grand Canyon University is a large, Christian university based in Phoenix, Arizona is recognized by the IRS as not-for-profit university. Founded in 1949, the university has had nonprofit status for the majority of its years, but was reorganized as a for-profit university between 2008 and 2018. For Fall 2021 the university enrolled roughly 113,000 headcount students across on campus, online and hybrid modes. Operating revenue was $1.3 billion in fiscal 2021 with over 97% reliance on tuition and auxiliary revenue.

METHODOLOGY

The principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dennis Gephardt
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.

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